Question: 5. Please answer the following two questions. (a) Explain the problem of unknown risks for financial instruments in furthering the 2007-2009 financial crisis. [10 marks]

5. Please answer the following two questions. (a) Explain the problem of unknown risks for financial instruments in furthering the 2007-2009 financial crisis. [10 marks] (b) Stocks offer an expected return of 20%, with a standard deviation 22%. Silver offers an expected return of 12% with a standard deviation of 30%. In light of the apparent inferiority of silver with respect to both mean return and volatility, why would anyone hold silver? [10 marks]

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